COLORADO SPRINGS, Colo. — With a bill before Congress to move up the effective date of the consumer protections embedded in the just-passed CARD Act to Dec. 1, a number of banks and card issuers have been raising card APRs as quickly as possible in advance of such a change.
Credit unions and card processors are also almost uniform in their belief there will be an opportunity for CUs to grab share over the next few months, especially when holders of bank-issued cards begin receiving statements reflecting boosted interest rates by year-end (
In the meantime, big banks aren't wasting time. Wells Fargo has increased its late fees and cash-advance fees; JP Morgan Chase has added a $120 annual fee on some cards that have low interest rates, and American Express has raised fees for some of its business cards.
For the most part, analysts told Credit Union Journal, credit union issuers have not been following suit. But there are some early signs some CU issuers have been migrating to variable rate card pricing over fixed rates.
"I have heard of a couple of credit unions [raising credit card rates]," said Bill Vogeny, SVP, Ent FCU, here, and secretary/treasurer of the CUNA Lending Council. "We don't have a card portfolio, but if we did I don't think we'd be doing that. It violates the spirit of the CARD Act. However, it's easy for me to say that. I'm not faced with severe earning issues other credit unions are."
Vogeny acknowledged that some credit unions may have no choice but to raise their rates to counteract the losses they are seeing from charge-offs. "It's a real challenge," he said. "It's a very difficult decision."
Vogeny noted the danger for credit unions raising card APRs is the risk of being lumped in with bank issuers, even in cases where pricing increases are more modest. "They can be painted with the same brush as the banks," he said. "We - the credit union industry - have worked very hard to build our reputation. That's one of the risks credit unions need to consider. However, you have to do what you have to do. I would never criticize anyone for raising rates."
What concerns Vogeny about any card APR increase scenario is that the member can decide to decline the higher rate by canceling the card, and paying off the balance at the previous rate.
"I don't think that's what the credit union really wants," he said. "You aggravate a member and force them to take their business to another financial institution."
For those credit unions that are able to make the decision to not raise their rates, Vogeny said he sees opportunity to grab share. "I never believed in doing what everyone else is doing," he said. "For the past decade, I think credit unions felt like that had to do 'me, too' card promotions. But there's always been a niche for credit unions, if properly marketed, for a fair-rate credit card, with fair late fees and a fair grace period for the late payment. If credit unions really drove the message home to their members, that we aren't going to charge you if you are one day late, you could appeal to members who are battling paying their bills on time every month."
